The Changing Nature of Asian Trade

As Asia's trade has grown rapidly, its nature is also changing—and with it the efficiency of international transactions. Asia's trade is becoming lighter, shifting from bulky goods towards lighter, often higher-value goods and weightless services. In particular, the information and communication technology (ICT) revolution have generated increased trade in ICT products and outsourced services, as well as greater migration of highly skilled professionals. More generally, the weight-to-value ratio of Asia's trade is declining (Hummels 2009). This has important implications for the choice of transport mode, the distance and destination of trade flows, the location and fragmentation of production processes, harmonization and standardization of customs classifications and inspections, and the demand for supporting infrastructure.

Changes in transport technology, notably improvements in air freight and containerization, have amplified these trends, particularly for time-sensitive goods. Standardized containers facilitate cost savings by allowing goods to be packed once and moved over long distances via a combination of transport modes—for example, truck, rail, ocean liner, rail, then truck again—without being unpacked, reinspected, and repacked. Air cargo shipments have grown rapidly and air cargo involving Asian countries has grown much faster than in the world as a whole, with international flights within Asia experiencing particularly rapid growth. Multimodal shipping and improvements in logistics services have made it possible to trade with more destinations in less time and often at lower cost (Brooks and Hummels 2009). When trade facilitation lowers the marginal cost of trade, exports tend to expand in two ways: new products are exported to new destinations, typically through small shipments from small firms, and existing trade flows deepen.

As these trade patterns have evolved, production networks have fragmented internationally and much of the growth of Asia's trade has been in parts and components for these fragmented global value chains. This trend (particularly in electronics and auto parts sectors) has been an important avenue for Asia's SMEs to benefit from globalization. For all East Asian countries, the share of components in exports and imports within the region has increased much faster than in trade with the rest of the world (Athukorala 2008). In 2005–2006, exports within the region accounted for 60% of total component exports; for component imports, the share was even higher. The increase in component intensity has been particularly noticeable in Southeast Asia's trade with the other developing East Asian economies, most notably the PRC. Korea and Taipei,China are also involved in substantial component trade with other countries in the region.

The combination of increased trade in parts and components within Asia and greater long-distance air shipments is generating many more (mostly small) new shipments, which benefits SMEs, while the biggest existing shipments are getting even larger. Thus, in the case of the PRC's exports, the mean shipment is getting bigger, while the median is falling. The pattern in other Asian countries is similar (in some cases, both mean and median are falling, but medians are falling faster) (Hummels 2009).

The diversity of Asian economies, combined with lowering of trade costs, has helped the region to capitalize on global patterns of production fragmentation, expanding intraregional trade, and expansion of development opportunities. The impacts of new investments in trade-related infrastructure are now being leveraged by coordination across borders in a wide variety of trade facilitating institutional architectures and trade agreements. In this evolving international context, the role of harmonizing and strengthening soft infrastructure stands out as an essential complement for enhanced physical infrastructure. Supported by a conducive policy environment and internalizing regional spillover effects through cooperative arrangements, trade facilitation is reducing trade costs and facilitating trade expansion, regional integration, and economic growth and development.

Wilson, Mann, and Otsuki (2003) found that enhanced port efficiency or reduced regulatory barriers have large and positive effects on trade, and improvements in customs and greater electronic business usage also significantly expands trade, but less than port or regulatory reform. They found that intra-APEC trade could increase by US$254 billion (about 21%) if those APEC members below average in these areas improve their capacity just halfway to the average.

Empirical evidence based on disaggregated trade flows by Martinez-Zarzoso and Marquez-Ramos (2008) indicates that lowering the number of days and documents required to conduct trade increases trade flows to a higher extent in trade of differentiated goods, and that improvements in service infrastructure foster international trade in all sectors. The authors found that, on average, a decrease of US$1 in the cost to export one TEU⁴ yields an increase in exports of almost US$11,000 and a one-day reduction in the average number of days required to export a good yields an increase in exports of 0.22%. The facilitating effect on trade flows of a reduction in both the number of days and documents required differs between exports and imports, and across sectors and countries, suggesting that priorities in trade facilitation policy recommendations should take account of different countries' individual industrial and trade structures.

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